Wednesday, March 25, 2015

This Post Is Not a Joke

Would you love to have a sidekick? Ideally a useful one? You sort of do already if you use your smartphone for more than texting links to kitten videos. This isn't just claptrap ... or maybe it is.

Wait for it ...

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It's difficult to get across to people the scale of economic growth produced by compounding of technological improvements (e.g., a 4,000 to 1 improvement in the cost of lighting over 175 years).

However, it's critically important to do so because, even in a developed country like the U.S. that is not posting ridiculously high growth rates (like, say, the 10-15% per year that Mongolia has been averaging) it's still reasonable to forecast a doubling of well-being during an adult's working lifetime, and perhaps a quadrupling from birth to death. What exactly will that entail, when there's lots of stuff (like food, clothing, and transportation) that can't increase much? Well, it means a lot of other stuff that will go from nothing to something.†

But, it's worse that that. All this growth is caused by improvements in the productivity of workers. This comes from increased use of capital. But we've now figured out how to further improve our ability to use capital by inventing technology that allows individuals to control more pieces of productive capital. That's what technology does: it turns workers who are productive because they use capital into more effective workers who are more productive because they use technology to increase the amount of capital they control.

Now, put on your tinfoil hat: how far are we from a future in which you can control a piece of technology mixed with capital that is capable of controlling the other capital you already control with technology? What is the world going to look like when you have ... not just a drone ... but an avatar?

An example may help: I'm not talking about transitioning from human-driven cars to self-driving cars, but rather a transition to an avatar that hangs around you and that you can tell to go to the car and drive to school and sign your sick kid out of the nurse's office and bring them home?

Think about the numbers for this. We float along year after year benefiting from improvements in technology of say 2% per year, and we float through our lives while that compounds over 10 years to a smooth and steady 22% improvement that we take for granted. And then you buy your first avatar, and it isn't perfect, but it immediately gives you a 20% jump in productivity. The thing that makes this thought experiment different from other ones we might conceive is that I want to assume that the avatar also benefits from future technological improvements: because it does what you do, when your productivity improves its productivity improves too, so you'll be compounding your compounding of productivity growth.

You end up with something that charts out like this:

What's critical about this is not that the blue "curve" has jumps (each time you get a new and improved avatar), or that it's higher than the orange curve (because the avatars improve your productivity), but that the slope of each long segment of the blue curve is steeper than the orange curve. As a result the slope of the jumps gets steeper too. This is what it happens if a sequence of improved avatars gets the same productivity improvements that its person gets.

BTW: What are you going to do when you're old if you're on the blue curve instead of the orange one, and you live long enough? What will you buy? Trinidad? Or will you be outbid by someone with 2 avatars?

When you play Borderlands, you're assisted by an annoying but useful robot sidekick named Claptrap that can act somewhat independently of you.

The thing is, the new box set comes with your own physical version Claptrap.

This Claptrap doesn't do too much. But it moves, it repeats phrases, and so on. Very much like other toy robots that have been around for 15 years or so. (Did you know that in Japan people are starting to have funerals for their robot dogs that are starting to die from something akin to old age?). But this Claptrap runs the android operating system, and can be programmed from your phone (even remotely). How many generations of marketing are we away from a physical avatar that comes with the game being more useful than the character within the game? So, you might need Claptrap to find water in the game, and the Claptrap in your home shows up a couple of minutes later with a mug of hot chocolate that it made from scratch because it knows its still winter outside and you'd like that better, especially if the milk is free of antibiotics?

Even better — some of you know that I'm taking Josh Price's Stata class with about half the students from this class — what will happen to you when a Dave Tufte can have his avatar learn Stata to compound Dave Tufte's productivity? Your absolute productivity will go up from learning Stata, but your relative productivity may fall further behind a Dave Tufte who leverages his avatar first.

Folks, I'm not sure how advanced such avatars will be in your lifetime. But I'm pretty sure that they're going to be independently productive enough that they're going to influence how we measure and understand productivity at the macroeconomic level.

† One of my favorite nothing to something improvements in well-being that's impossible to quantify is an app called SoundHound. I'm old enough to remember when few people knew the names of the songs they liked. That's weird, right? This was the mid to late 1970's. And there were two new technologies that were disrupting the lives of teenagers: FM radio and cassette tapes. FM allowed broadcasts in stereo with greater dynamic range (there's a reason that AM still sounds worse than FM). Cassette tapes allowed people to record cheaply and easily. The problem for the music industry was that people could tape songs off the radio. The way the music industry got around this was by encouraging a bunch of antisocial behaviors on the part of radio DJ's: fading in and fading out songs, talking over the fade in and fade out, and mentioning the artist's name but not the song's title (or discussing the lyrics too much). DJ's got kickbacks to behave this way! And listeners had to go pay real money to get all that stuff that we might now call metadata. The reason was so you'd hear this, say, really trippy song on the radio and all you'd know was that it was by the Eagles, and you'd go to the record store and there'd be a bin filled with copies of an LP called Hotel California and you'd buy the whole thing to find the one song (at $5.99 when it came out in 1976, or about $25 in today's dollars). I kid you not: to avoid this people would have tapes that they'd love, and their friends would love too, and the labels were blank because no one knew the names of all the songs. No one knew the lyrics either, which is why in 2015 sites like KissThisGuy feature misheard lyrics of mostly older songs: that site is a response to what used to be an actual problem for music listeners. And now we have SoundHound. Do you know this app? If not, you turn it on when you hear a song you like that you don't know ... and it listens to the song for a few moments, identifies the song, locates its metadata, and sends it back to your phone ... with streaming lyrics if you're into that ... and links to buy that song with a click or two.

All of this footnote may seem like so much navel-gazing. It isn't. Back then we spent money on records that got counted in GDP that no longer gets counted ... so the numbers tell us we're poorer now. But we aren't. Further, we spent ridiculous amounts of time back then looking through friend's record collections trying to glean little bits of metadata. We wanted that, so it must have been valuable, and should have been counted in GDP, but it wasn't so the numbers back then were telling us we were richer than we really were. Flash forward, and SoundHound provides us all of that in a form that's impossible to measure with GDP, so we're richer on this count too, but the numbers don't show it.